Education Suffering Due to Tourism Investment Success

Monday, 16 November 2009 00:00
News Editor

Foreign Direct Investment (FDI) demands more resources and tax exemptions than the Bahamas and other Caribbean countries ought to give away, while redirecting revenues away from sectors that need them, such as education, a former finance minister has argued.

James Smith, speaking at the Anatal Rodgers Memorial Lecture on construction, said incentives given to investors need not be so draining to a country, and that the success FDI brought to the Bahamas may have inadvertently undermined education.

"We're giving away a little bit more than we ought or need to to attract the investment," said Mr Smith.

He said FDI in the Bahamian tourism sector may have led to the decline in the will to pursue tertiary education. He cited the phenomenon of a hotel "towel boy", whose earnings were larger than those of a high school teacher, as the draw to hospitality and turn away from higher learning.

Mr Smith said two opposing viewpoints on FDI exist: That because the growth of lesser developed countries was constrained through lack of capital, FDI was the only source of capital, yet concessions would have to be offered.

The other was that "FDI only extracted resources from poor countries, providing very little economic linkages, no indigenous development and only provide returns to the investor".

"Differing views reconcile over time and countries, and the Caribbean had to re-think and examine the 'quality' of FDI as well as the 'quantity', " he said.

However, Mr Smith suggested that those two viewpoints have come to reconcile themselves over time as the global economy and dynamic of developing and developed countries has changed.

He inferred, though, that the tourism sector in the Bahamas could be seen as coinciding with the latter viewpoint, having helped to remove a focus from the pursuit of education to instant gratification via employment in the hospitality industry.

Mr Smith termed it a 'one-crop economy' which could invariably implode over time.

"It is beginning to feed on itself," he said. "It has to expand and grow because of the employment demand placed on the sector."

Despite the possible drain to the standard of education, Mr Smith said FDI in the Caribbean and the Bahamas was responsible for a huge gain in long-term capital flows in the English-speaking Caribbean. He said that over 10 years, those private capital flows increased from about $330 million to $3 billion.

While FDI was thought to stifle domestic investment, Mr Smith argued that it was necessary to keeping the Bahamas' foreign reserves high. He also said the finality of those foreign reserves are the reason local investors would find it difficult to take on mega hotel construction projects, as those funds would leave the Bahamas to finance the build-out.

Besides that obvious barrier, Mr Smith said: "I don't know too many Bahamians who can raise that kind of money."